Lower mortgage bills for £750,000 in London

ABOUT 750,000 London homeowners can look forward to lower mortgage bills next month following today's historic cut in interest rates.

Between 40 and 50 per cent of mortgage holders will get some benefit from the 0.5 per cent reduction. However, it was unclear how much lenders would cut - if anything - from their rates for new borrowers.

Nine out of 10 homeowners with tracker mortgages and many on standard variable rates will be told their repayments will come down in line with the Bank of England's base rate.

But tracker borrowers with the Nationwide and some smaller building societies such as the Skipton and Yorkshire will not receive a windfall.

They have so-called "collars" in their small print that will stop their customers' rates falling any further. In total up to 300,000 borrowers nationally, and about 45,000 in London, will be caught out.

A handful of major lenders including LloydsTSB, Cheltenham & Gloucester, HSBC and Nationwide said they would pass on the reduction in full in their standard variable rates. Other big high street names including Halifax, Abbey and Woolwich said their standard rates remained "under review".

For savers, particularly pensioners dependent on income from investments, the cut is yet another shattering blow.

The last savings product paying more than five per cent has been withdrawn and almost half of accounts now offer rates of less than one per cent.

Lenders warned that mortgage rates are now close to the bottom and that little, if any, of future base rate cuts will be passed on except to existing tracker customers. Stephen Noakes, marketing director at Cheltenham & Gloucester, said: "We're now more or less at the bottom of the market and those looking to remortgage can take full advantage by locking in for as long as possible. We're offering a 10-year fixed rate to give customers maximum value in this low rate environment."

Borrowers were advised to grab the deals currently available as they were likely to be the best for many years.

Andrew Montlake, a partner at independent mortgage broker Cobalt Capital, said: "I suspect we are very close to the limit at which lenders can profitably offer mortgages. The products offered in the next few months could be the best we are likely to see in the current cycle.

"People who opt for a fixed-rate mortgage now could do very well, as interest rates will have to rise, perhaps as quickly as they have fallen, once we begin to exit the recession."

Gloomy property experts said the latest cut would do little to stimulate the frozen market. Peter Rollings, managing director of London estate agent Marsh & Parsons, said: "Banks simply aren't passing these cuts on. Interest rates mean very little if you don't have a large deposit. In London, house prices are still high enough that a 25 per cent deposit is a fortune for a first-time buyer."

Alan Tomlinson, a partner at licensed insolvency practitioners, Tomlinsons, said: "For companies that are already struggling it will be of no real help. Many of the companies we are advising have fundamental problems such as sharp drops in turnover."